Clarity and Predictability at the SEC: Abacus, Citigroup, and the Political Economy of Securities Fraud Settlements
Scott Bell, Clarity and Predictability at the SEC: Abacus, Citigroup, and the Political Economy of Securities Fraud Settlements, 2012 Colum. Bus. L. Rev. 865.
The United States Securities and Exchange Commission (“SEC”) recently brought several enforcement actions against large investment banks for transactions involving collateralized debt obligations (“CDOs”)—transactions that collectively cost their investors billions of dollars in losses. In three actions involving separate banks, the SEC reached widely different results, despite alleging similar transaction structures in each case. One commentator suggested that Citigroup benefited from a “late-mover” advantage in its dealings with the SEC. This allowed the bank to reach a favorable settlement compared to the settlement achieved by Goldman Sachs.
This Note examines the salient details of each of the three transactions and settlements: Goldman Sachs’ ABACUS 2007-AC1, LTD; J.P. Morgan’s Squared CDO 2007-1, Ltd.; and Citigroup’s CLASS V Funding III, LTD. It then evaluates how the nine factors the SEC uses to guide its settlement decisions appear to have been applied inconsistently across transactions. Concluding that the nine factors do not adequately explain discrepancies in the settlement results, this Note argues that other differences, such as the timing of the suits, growing uncertainty regarding the applicability of legal standards to the available facts, and the varying public perception of each bank in question, provide more insight into the results of the SEC’s enforcement actions.
Volume 2013 | Issue 3
A selection from our current issue.
- The Glass Boardroom: The SEC's Role in Cracking the Door Open so Women May Enter
by Tamara S. Smallman
- Settling on an Interpretation of "Instrumentality" in the FCPA
by Justin Epner
- Who’s Leading the Blind? Aimster, Grokster, and Viacom’s Vision of Knowledge in the New Digital Millennium
by Fiona Finlay-Hunt
- Noise Adopters in Corporate Governance
by Michal Barzuza
- Regulation Through Substitution as Policy Tool: Swap Futurization Under Dodd-Frank
by Gabriel D. Rosenberg and Jai R. Massari
- State Ownership and Corporate Governance in China: An Executive Career Approach
by Li-Wen Lin